From the author of

From the author of

Business Isn't So Simple Anymore

Business may be changing for the better, but it's not getting any
simpler. The relationships among companies have even fewer clear boundaries and
linear workflows; as a result, ideas such as partnering and competing have
become less clear.

Earlier in this article, we discussed how companies are using the web to
create new and creative ways of serving their customers—but they're
finding that many more other companies are trying to do the very same thing, and
with the very same customers. Increasing competition has become a fact of life
in business, but with e-business the whole idea of competition has changed,
becoming much more widespread and multidimensional. Companies used to know their
competition. Now, competitors can come from out of the blue or even be
one's own suppliers or customers.

The complex world of 21st century business is pushing companies to form new
and different kinds of partnerships with suppliers, customers, and in some cases
even competitors. These new relationships can last for a week or a lifetime, but
companies need to be prepared to respond quickly to opportunities and shift
mental gears in ways they rarely needed to before.

Competitors and partners now can come from almost anywhere. The global nature
of the marketplace today opens new business opportunities for companies, but it
also opens your current customers to competitors from elsewhere. With the World
Wide Web now a worldwide activity, companies providing web-based services can
sit next door or in Bora Bora, and still (in many cases) perform equally well;
employee retention in Bora Bora may also be better.

One of the authors recently conducted a web search for companies with whom to
outsource an organization's own in-house publications and web publication
operations. This organization had a growing list of complex technical
publications and wanted to avoid hiring more staff to handle the demand for
technical content. Instead, they sought a turnkey operation that could display
titles and descriptions and take orders over the web, although the organization
would continue to handle physical fulfillment.

The search came up with several good candidates, all of which seemed to have
sound operations and attractive web sites. Only after close inspection did the
organization find that the candidates included companies with operations in the
U.K., Singapore, and India. Before the web, would operations in those countries
have even been considered for the job? Not likely. And given the business needs,
physical location really didn't matter. For many kinds of business
services, the web has made national boundaries irrelevant.

Businesspeople, journalists, and politicians are calling this new phenomenon
globalization. But globalization is much more than business and technology.
Thomas Friedman identifies six different dimensions to understanding globalization:
politics, culture, military, financial markets, technology, and the environment.
Friedman notes that being a globalist requires understanding the interaction
of all six dimensions that defines the globalized system.7

The outsourcing example cited above relates to another feature of 21st
century business and the complex, competitive environment in which it operates.
With increasing competition from offshore, or to meet investor demands for
increasingly more profitable performance, companies have begun concentrating on
their core competencies, which means going outside for services not directly
related to the mission of the company. In many organizations, the first
operation outsourced was payroll, and companies such as EDS and ADP became
profitable performing these tasks for clients.

Outsourcing key functions increases the interdependency of companies. Package-delivery
services, for example, have become crucial to the success of many companies
serving customers over the web. When the Teamsters Unions went on strike against
UPS in August 1997, President Clinton came under pressure to invoke emergency
provisions of labor laws and order the striking drivers back to work. These
laws had been used in the past only for vital services such as the railroads.
The dependence of companies on UPS had apparently made a strike against the
company almost as much of an emergency.8

The need to go outside the company for vital services requires more sharing
of information with the outsourcing partners. More than just suppliers, they
become key players in the success of your business, which means that you need to
share vital business data with them. But remember that one's partner today
can also be a current or potential competitor; for example, when a partner is
capable of doing what you suggest as an opportunity, or can partner with another
company to provide the same thing. If you haven't already deployed and put
the solution in place, beware! Therefore, one of the important requirements of
e-business is the need to move quickly and engage in business from a dead start
with little advance warning as opportunities develop, or if companies suddenly
need to terminate relationships at a moment's notice and fill the resulting
gap themselves.

Another feature of the 21st century economy is _the need to address markets
through different means. Distribution channels using the traditional supply
chains—manufacturer to distributor to dealer to customer—are under
increasing pressure from customers looking to cut out the middlemen and their
markups, as well as suppliers wanting to reach end users as directly as
possible. A plain fact of life of 21st century business is that companies in the
supply chain must add value to the process, or risk being cut out of the
action.

The plight of travel agents today vividly illustrates this fact. Agents used
to make commissions from their booking of inventory held by travel suppliers:
airline seats, hotel rooms, rental cars, and tour packages. They justified their
commissions on the volume they could produce for the suppliers, and on finding
the best travel values for customers. Travel agents used third-party services
called global distribution systems (GDSs) that aggregated the inventories of the
travel suppliers and made it possible for travel agents using online terminals
to search out the best travel bargains quickly and easily.

Sabre is perhaps the best-known GDS, although others such as Worldspan, Galileo,
and Amadeus compete for travel services. Sabre started as the online booking
engine for American Airlines, and then expanded the service to include other
airlines and later other travel services. AMR Corporation, the parent company
of American Airlines, spun off Sabre as a separate company in December 1999.9

Obviously, the web has changed the travel industry landscape. Not only can
customers do their own searching for the best of posted prices; they can search
out distressed inventories (empty seats, rooms, or cars) on their own or through
dynamic pricing services such as Priceline.com. With this increasing computing
power in the hands of customers, both travel suppliers and GDSs want the ability
to reach the customer, as well as work through the traditional travel agents,
for those customers who need help with bookings.10
Sabre created its Travelocity.com service specifically for this purpose.

Making business even more interesting in the 21st century is the fluid nature
of competition. Your partner in one activity today can be your competitor in
another activity tomorrow, in a practice called coop-etition. For example,
companies may form joint ventures to develop specific products and services,
while competing at other levels. Organizations also take part in consortia to
develop industry standards and specifications. In these consortia, such as the
Interactive Financial Exchange Forum or the Open Travel Alliance, companies that
normally compete with each other pool their knowledge and experience to agree on
specifications that provide the overall industry with a common platform or
data-exchange specifications. (Notice that many of the ebXML participants today
come from these multi-company consortia.)

But if a partner today is a competitor tomorrow, companies need to take steps
to protect themselves from partners using the information gained from the relationship
against the former partners. As a result, one finds greater use of a document
called a non-compete agreement, in which partners agree not to divulge details
of the joint work or use it in competitive products or services.11

And what about customers? Companies who took care of their customers used to
be rewarded with the customers' loyalty. This is no longer the case. Now,
with increased competition, companies need to continuously build value in their
relationships with customers or find their former loyal customers going to the
competition.

Companies want to be able to build a continuous relationship with their
vendors, but still get the best quantity/quality value for the price. To meet
this objective, companies try to translate their requirements into
specifications that enumerate and quantify their requirements, so any vendor
with the right capabilities can take its best shot for the business.

This process forces suppliers to fit their products and services into their
customers' specifications, to enable the customers to make a rational
selection. But once this process happens, customers can start treating their
suppliers' products and services like commodities, since they become, in
effect, interchangeable.

Taking the idea to the next stage, companies can _post their requirements on
an open exchange, and have vendors compete for the business. These vertical
exchanges have become a common way of doing business over the web. In the beginning,
vertical exchanges provided matchmaker services—essentially putting together
buyers and sellers. However, exchanges have begun taking on more functions and
covering more of the supply chain. Marketplaces including e-Steel, FastParts,
and ChemDex have now started covering more functions than simply buying and
selling, in order to compete for business.12

The market research company IDC categorizes exchanges as follows:

E-distribution sites, designed to serve the sellers' interests

E-procurement sites, designed for buyers

E-marketplaces, which are neutral and take into account the interests of
both buyers and sellers

IDC predicts that e-marketplaces will become important players in the e-business
arena. The company estimates that e-marketplaces will account for 7.5% of the
world's total e-business volume in 2000, but grow to 56% by 2004. IDC cites
examples of e-marketplaces including Freemarkets and Suppliermarket.com for
industrial goods and QuoteShip.com and GoCargo for logistics services.13

However, exchanges have raised questions about potential violations of antitrust
laws. As of October 2000, these questions have not been settled conclusively,
but some early signs suggest that they will pass legal scrutiny. In September
2000, Covisint, the automotive industry exchange formed by DaimlerChrysler,
Ford Motor Company, General Motors, and Renault/Nissan, received antitrust clearance
by the U.S. Federal Trade Commission and Germany's Bundeskartellamt.14